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Title Insurance Overcharges

Federal Judge Greenlights RICO Suits Against Title Insurers

Shannon P. Duffy
The Legal Intelligencer
January 27, 2010

In a major setback for several title insurers, a federal judge has refused to dismiss a trio of class action consumer RICO suits that accuse the companies of engaging in a pervasive pattern of overcharging for title insurance by systematically ignoring entitlement to statutory discounts.

Although title insurers have been battling a wave of consumer litigation in recent years, the three decisions by U.S. District Judge Joel H. Slomsky mark the first time that a court has green-lighted RICO claims.

Defense lawyers had urged Slomsky to dismiss the RICO claims, arguing that the plaintiffs failed to plead a proper RICO enterprise since an insurer and its agents cannot be considered legally "distinct."

Slomsky disagreed, saying "plaintiffs have satisfied the minimum 'person' and 'enterprise' distinctiveness requirement because the combination of Commonwealth Land and the title agents constitute a single 'enterprise' separate and distinct from the 'person' of defendant Commonwealth Land and this combination is permissible under RICO jurisprudence."

In a footnote to his 38-page opinion in Coleman v. Commonwealth Land Title Insurance Co., Slomsky noted that he had handed down nearly identical opinions in two other cases -- Schwartz v. Lawyers Title Insurance Co. and Levine v. First American Title Insurance Co. -- changing "only the factual averments and the names of the parties in appropriate places."

In the suits, homeowners claim they were overcharged for title insurance when they purchased or refinanced because they were never told that they qualified for a discounted premium.

Under Pennsylvania law, title insurance rates are governed by a statute that calls for a 10 percent "reissue rate" discount whenever a property owner purchases title insurance within 10 years of obtaining a policy issued on the same property and a 20 percent "refinance rate" discount if the property owner applies for title insurance within three years of obtaining a previous policy.

The plaintiffs team in all three cases -- attorneys Todd S. Collins and Elizabeth W. Fox of Berger & Montague, along with Ann Miller in Philadelphia and Daniel Harris and Anthony Valach of The Law Offices of Daniel Harris in Chicago -- contend that the routine and systematic overcharging of consumers is exactly the sort of conduct the civil RICO statute was designed to address.

"Title insurers and their agents take advantage of consumers' ignorance and trust by (1) deliberately misrepresenting and overstating the amount of money due for title insurance; (2) concealing from consumers that they are being overcharged; and (3) having title agents, acting in their capacity as settlement agents, pay the inflated bills on the consumers' behalf out of the consumers' mortgage loan proceeds -- monies that have been entrusted to the title agents in their capacity as settlement agents," the plaintiffs wrote.

But defense lawyers argued that the RICO claims were riddled with fatal flaws and failed to satisfy the strict requirements imposed by both the U.S. Supreme Court and the 3rd U.S. Circuit Court of Appeals.

Attorneys Darryl J. May, Paul Lantieri III and Jessica M. Anthony of Ballard Spahr are defending both the Commonwealth Title and Lawyers Title cases. Attorney Charles A. Newman of Sonnenschein Nath & Rosenthal in St. Louis leads the defense for First American.

In their briefs, the defense teams argued that title insurers have no fiduciary duty to disclose the alleged entitlement to the discounted rate or to inform plaintiffs of the non-disclosure.

Slomsky disagreed, saying, In "light of the complexity of title insurance rates and the expertise of defendant and title agents ... the argument that defendant had no duty to disclose the right to the discounted rate is not persuasive."

Instead, Slomsky found, the insurers and their agents "had the responsibility to charge the correct rate, and disclosure of the correct rate is part and parcel of that responsibility."

But the main thrust of the defense motions was to challenge the plaintiffs' RICO theory by attacking their pleading of an "association-in-fact" enterprise.

The RICO enterprise alleged by the plaintiffs, they argued, does not satisfy the "distinctiveness" requirement of RICO as explained in copious federal case law.

To satisfy the "distinctiveness" requirement under §1962(c), the defense team said, a plaintiff must allege that the RICO "enterprise" is distinct from the defendant "person" alleged to have violated RICO and that the "enterprise" is distinct from the alleged pattern of racketeering activity.

But the plaintiffs lawyers argued that the insurers are the liable "person" and the "enterprise" is an association-in-fact between the insurers and their title agents in Pennsylvania.

The title agents are subject to the insurers' control and take a percentage of the premiums collected as their remuneration for their services.

But defense lawyers insisted that since the insurers acted only through their agents, the "person" and "enterprise" are one and the same and therefore fail to satisfy RICO's distinctiveness requirement.

Slomsky sided with the plaintiffs, finding that their allegations are valid, at least in theory, because "these title agents are independent and distinct entities and individuals."

The title agents "are not employees" of the insurers, Slomsky noted, "but rather they are non-exclusive agents who work with different title insurance companies."

Although title agents have an "agency agreement" with the insurer, Slomsky said, "they are still separate, independent entities who do not function as subsidiaries or employees."

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